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Coinbase to enter the crypto derivatives fray

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(Kitco News) - Leading U.S. cryptocurrency exchange Coinbase plans to expand into cryptocurrency derivatives trading.

The company has filed an application with the National Futures Association to become a futures commission merchant under the entity Coinbase Financial Markets. Joe Nikolson, based on the filing, will be the CEO.

Nikolson has been a FINRA-registered broker with Coinbase since 2018. He is named as one of six principals of the new entity, a list that extends to Coinbase CEO Brian Armstrong.

As of Sept. 15, Coinbase's application with the NFA is in pending status. The Commodity Futures Trading Commission (CFTC) has proven to be a more crypto-friendly regulatory body than the U.S. SEC. The CFTC, under former chairman Christopher Giancarlo, did not stand in the way of Bitcoin futures getting approved back in 2017 while the SEC has yet to green-light a Bitcoin ETF.

Coinbase's expansion into crypto derivatives, has been well telegraphed. Earlier this year, the company bought Skew, a crypto market analytics platform for professional investors that specializes in the spot and derivatives markets. Coinbase is already out front in the cryptocurrency spot market but has been on the sidelines for derivatives.

Coinbase is entering a crowded market. Rival exchanges, including Binance and Kraken, already provide access to cryptocurrency futures. Binance's bitcoin futures volume currently hovers at $14.5 billion, according to Skew data, while open interest is $3.57 billion. For its part, Kraken supports crypto futures trading outside of the United States and some other jurisdictions with up to 50x leverage in the following coins: Ethereum, Litecoin, Bitcoin Cash, Ripple and Bitcoin. The CME, a first mover in crypto futures, supports Bitcoin and Ethereum futures, having paved the way for institutional investors to enter the crypto markets.

Social media users expressed an interest in what the fee structure might look like, with some saying that Coinbase fees are known to be "atrociously high."

SEC kerfuffle

Coinbase is entering the cryptocurrency derivatives fray just as it is locking horns with the U.S. SEC over a future lending platform. Coinbase wants to allow users to generate interest with cryptocurrency assets. The SEC has threatened to sue if the company moves forward with its plans, having issued a Wells notice to Coinbase.

Attorney James Filan, a former federal prosecutor in the U.S. Attorney's Office for the District of Connecticut, told Kitco,

"I think that SEC Chair Gary Gensler is trying to control the entire cryptocurrency space and he is doing it through regulation by enforcement, which is never a good idea. While pursuing these enforcement actions, Gensler is also working Congress to get the power and control he wants through new legislation. He's also now using the media to try to craft a narrative that the entire cryptocurrency space is out of control, which is an unfair and inaccurate characterization."

Coinbase's Armstrong, meanwhile, is on the offensive.

"I believe the message that Brian Armstrong is trying to send is that Coinbase is willing to work with the SEC and give the SEC an opportunity to provide regulatory guidance, but in the absence of that, Coinbase looks prepared to litigate. The problem, in my opinion, is that until Gensler gets what he wants from Congress, he's also prepared to continue to litigate," said Filan.

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